GOP's Senate takeover could facilitate tax reform, trade accords

#8220;We all know having the highest corporate tax rate in the industrialized world is a job exporter,” said incoming Senate Majority Leader Mitch McConnell (R-Ky.), shown above at a campaign stop before the elections. (J. Scott Applewhite / Associated Press)

The Republican takeover of the Senate raised the business community's hopes that stalled efforts to overhaul the tax code and enact other top priorities finally could move forward.

A key will be the common ground that President Obama and the GOP share and their ability to compromise on some of those issues, despite six years of intense partisan fighting that has polarized the parties.

"I think the overriding message here was … get to work," said former Michigan Gov. John Engler, president of the Business Roundtable trade association. "We need greater growth. We need jobs."

There's a lot of work to do to overcome the seemingly entrenched Washington gridlock.

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Businesses have been pushing initiatives that they say would boost the economy, including lowering the corporate tax rate, enacting immigration reform, building the proposed Keystone XL pipeline and concluding a new Pacific Rim trade agreement.

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Many of those have been derailed by a legislative stalemate between the Republican-controlled House and Democratic-controlled Senate and White House.

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With Republicans set to take charge of both sides of the Capitol after Tuesday's elections, their negotiating hand improves. But the party also gains more responsibility if Washington remains dysfunctional.

"After years of gridlock, this election represents a unique opportunity for Congress and the administration to govern responsibly," said Sen. Bob Corker (R-Tenn.)

The top priority for both business and the GOP is a tax overhaul. It also provides an opportunity for the party to show it can work cooperatively to address such an important issue. Obama and Republican leaders agree that reducing the nation's corporate tax rate, the highest among major industrial economies, is imperative to U.S. competitiveness globally.

On Wednesday, Obama and incoming Senate Majority Leader Mitch McConnell (R-Ky.) both told reporters in separate news conferences that tax reform was an issue where the two parties could work together.

"We all know having the highest corporate tax rate in the industrialized world is a job exporter," McConnell said.

Obama said that there was "an opportunity for us to do a tax reform package that is good for business, good for jobs and can potentially finance infrastructure developments here in the United States."

"Now, the devil's in the details," he said.

House Speaker John Boehner (R-Ohio), who will lead a larger Republican majority, made reforming the tax code the first of five items on the post-election agenda he outlined in September.

And the recent wave of U.S. companies relocating to nations with lower tax rates has added more fuel to the call from Republicans and Democrats for an overhaul.

"Other countries are cutting their rates. We just have to do something if we want companies to be located here and to thrive," said Caroline Harris, chief tax counsel at the U.S. Chamber of Commerce. "I'm hopeful and optimistic the House and Senate can pass something."

Democrats and Republicans differ sharply on how to overhaul the tax code, particularly on the new corporate rate and on whether individual tax rates also should be reduced to cover business owners who put their revenues and costs on personal returns. They also disagree on whether reforms should be used to raise additional revenue for infrastructure spending.

The differences are emblematic of rifts between Republicans and Democrats on other key business issues, such as immigration reform and a hike in the minimum wage.

"We're fully aware it's going to be difficult," said Dorothy Coleman, vice president for tax and domestic economic policy at the National Assn. of Manufacturers, which has made tax reform a top priority.

Sen. Orrin Hatch (R-Utah), the incoming chairman of the tax-writing Finance Committee, said overhauling the tax code is an area where Republicans and Democrats can work together "to advance bipartisan, job-creating initiatives."

The Democrats' loss of the Senate majority has a potential silver lining for Obama on another top business priority.

Free trade agreements are more popular with Republicans than Democrats, who are more worried that such pacts can send U.S. jobs overseas. If the Obama administration succeeds in concluding trade deals with nations in Asia and Europe, it stands a better chance of winning approval in a Republican-controlled Senate.

On Wednesday, McConnell mentioned trade along with tax reform as two "potential areas of agreement" with Obama.

"Most of his party is unenthusiastic about international trade. We think it's good for America," McConnell said. He said he urged the president in a phone call Wednesday to "send us trade agreements."

Since Obama's first term, White House negotiators have been working on an Asia-Pacific free-trade agreement involving a dozen nations, including Japan, Mexico and Canada, that together account for 40% of the world's economy.

The so-called Trans-Pacific Partnership is the economic centerpiece of the administration's efforts to exert greater influence in the Asia-Pacific region and reassure allies in the face of China's growing economic and military power.

TPP talks were supposed to have been wrapped up last year, but Obama's efforts have been hampered by members of his own party, particularly senior Democratic lawmakers interested in protecting manufacturing and agricultural interests in their states and districts.

For most of this year, U.S. and Japan — the two key parties in the talks — have been at loggerheads over high Japanese tariffs on imported beef, pork and dairy goods. And on that point, it might not matter which party controls the Senate.

"Republicans want market access as badly as Democrats do," said William Reinsch, president of the National Foreign Trade Council, a Washington, D.C., group that represents companies doing business abroad.

"Beef, dairy, cheese — They're very close to Republican hearts as they are to Democrats'. They're not going to give the administration more of a pass," he said of Republicans.

Lori Wallach, trade director at Public Citizen, said Tuesday's election results could make a compromise with Japan more difficult.

"The demand for Japan to either zero out all of its ag tariffs or get out of the talks comes from the Republicans," she said.

At the same time, political analysts said, congressional Republican leaders have at least a couple of good reasons to get behind Obama on the Pacific Rim pact as well as the administration's more-recent trade negotiations with Europeans.

"Republicans need to show they can work with the president and accomplish things," said Robert Shapiro, a Washington consultant and economic advisor in the Clinton administration. "Second, it's very important to business supporters of both parties," he said of trade agreements.

Engler, at the Business Roundtable, urged Congress to pass legislation before the end of this year that would give Obama fast-track authority to help seal a free-trade deal.

But that legislation isn't expected to be taken up until next year, and there are questions whether new, more conservative Republicans support trade as much as the party's lawmakers have.

"Most people feel that Republicans are pro-free trade. I'm less certain of that," said Clyde Prestowitz, a former trade negotiator in the Reagan administration. "I don't think fast-track is popular with Republicans or Democrats."